Session: Issues in Smoking Control
Room: Phillips 203
Time: Wed 12:00-13:30

Presenter: Rong Zheng (Central University of Finance and Economics. School of Taxation)

Discussant: Philip DeCiccaMcMaster University

Abstract

This paper explores tobacco tax structure and cigarette pricing mechanism in China, develops a general analytical framework for Chinese tobacco turnover tax system, and examines effects of 2009 tobacco tax adjustment on cigarette consumption and tax revenue. We find that tax is not the most important factor determining cigarette retail price, but it significantly affects profits of tobacco industry under current tobacco monopoly system in China. The increasing tobacco exercise tax in 2009 does not increase cigarette retail price, but increase government revenue by 58.987 billion RMB which is actually a transfer of tobacco industry’s profit to government tax revenue. It is the profit margin that determines cigarette wholesale price and retail price. From the perspective of tobacco control, China needs to reform its tobacco tax system and collects taxes at cigarette retail segment to increase retail price while reducing the control of monopoly authorities over cigarette price.

Key Terms

tobacco tax, retail price, tax incidence,tax revenue, tobacco control

Authors:

Song Gao ( Central University of Finance and Economics. China Academy of Public Finance and Public Policy) and Rong Zheng ( Central University of Finance and Economics. School of Taxation)